"The size of the proposed fine reflects how seriously Ofwat takes the deliberate misreporting of information."

Severn Trent said it had already slashed customers' bills by £10.6m - about £2.40 per household - to prevent the company from profiting.

Chief executive Tony Wray said a thorough reorganisation of the company had taken place since the discovery of the misreporting.

He added: "There is no doubt that the previous regime and culture in place during the era from 2000 to 2004 was overly bureaucratic and lacked sufficient controls and procedures.

"Those who were responsible for the customer relations mistakes are no longer with Severn Trent and we apologise to our customers for their failings."

The Consumer Council for Water (CCWater) agreed that Severn Trent should be penalised by Ofwat, but said it would be more beneficial to customers if the money was invested in services.

James Perowne, chair of CCWater Central and Eastern, said: "Fines should not be just another source of income for the Treasury."

This week, Severn Trent also pleaded guilty at the City of London Magistrates' Court to two charges from the Serious Fraud Office for falsifying leakage figures provided to Ofwat in 2001 and 2002. A third charge has been dropped.

The company will be sentenced for at a future court hearing.

Southern Water was fined £20.3m by Ofwat in February for similar offences. Thames Water also faces a £12.5m penalty for inadequate reporting and providing a poor service for its customers.